Thursday, May 25, 2017

The London gold price benchmark has been a fixture in the global markets for well over 100 years, but several key events over the past few have put it and the LBMA's control over determining the price of precious metals at risk.

And this breakdown appears to be accelerating as in the past two months, four banks have left the coalition that determines the twice daily price, the entity that facilitated the benchmark auctions broke their contract with the LBMA two years early, and rumors that the exchange may be virtually out of gold are getting stronger every day.

London's gold benchmark experienced large, unpredictable
fluctuations after some banks left the auction that sets the price relied upon
by the $5 trillion-a-year bullion market, according to a Reuters analysis of
trading data.

The benchmark is meant to be a fair and accurate daily
snapshot of the fast-moving "spot" market and is used by gold
producers and consumers around the world to price contracts.

Its level is set by the London Bullion Market Association
(LBMA) Gold Price auction, which sees big banks and brokers electronically
input their trading orders, with an algorithm matching buyers to sellers and
setting the price.

But trading volumes fell sharply after April 10,
when four of the 14 participating banks and brokers stopped taking part after
the auction's administrator, Intercontinental Exchange (ICE), introduced a
requirement to clear that meant participants had to modify their own IT systems
and procedures. - Reuters

Information on the lack of physical gold backstopping the LBMA

Other than the paltry 5-7 tonnes of physical transacted on a big day in London, there
is zero physical for sale of any size at current prices. However, there is
strong physical buying, and competing central banks and sovereigns have learned
to game the paper markets and are locking in spot gold and seeking delivery.
This cannot last long. – King World News

This lack of supply coupled with a large number of bullion banks leaving the LBMA are in large part why we saw the historic and unprecedented beatdown of gold and silver prices starting in late April and commencing through the middle of May. It is their recognition that the entire process could collapse because the curtain is being thrown open to the market's ponzi scheme that these banks desperately needed to cover their massive naked short contracts before revelations of zero liquidity cause the price to skyrocket in the future.